The right loan can serve as an asset for small-business owners, providing a lifeline in a time of need and helping them tackle their endeavors for growth.

Whether you’re seeking support for a start-up, aiming to expand, or desiring the security of having reserves for unforeseen expenses or challenges, smallbusiness loans can serve as a valuable funding source for your goals. Utilize this guide to help determine which options may align best with your needs.

Business line of credit

If your business needs a cash-flow injection to cover unexpected expenses, purchase inventory or equipment, or bridge temporary income gaps, a business line of credit can be a great tool.

It enables you to withdraw funds up to your approved limit, and you’ll only pay interest on the money used. Once it’s repaid, you can tap the line again as needed. To determine if you qualify for a business line of credit, lenders will look at both your personal and business credit scores, revenue, and financial history. If you have a new business that has yet to establish a solid credit history, consider seeking out assistance from online lenders, who tend to be more flexible with their qualifications than traditional banks.

Equipment loan

For businesses looking to own rather than lease their equipment, this type of financing (where the equipment itself is used as collateral) is often more hassle-free and accessible than a traditional loan. Lenders specializing in large equipment purchases also understand the nuances involved with this transaction better than others, helping to ensure a smoother process. Just be aware that some lenders will require a down payment and that the equipment’s depreciation may outpace its repayment timeline.

Microloan

Start-ups or businesses that need only a small amount of financing can benefit from microloans, which are usually between $500 and $50,000. Sometimes larger banks will fund these loans, but you’ll generally be better off turning to an online or nonprofit lender. One downside, though, is that the interest rates on these loans may be higher than those from traditional banks, making it more challenging to find an affordable lender.

Personal loan

Many banks tend to hesitate to lend money to start-ups or newer businesses because they have limited or no operating history. In these cases, obtaining a personal loan can be a viable solution. It offers greater flexibility, enabling you to use the money any way you desire, whether you want to purchase equipment and inventory or fund day-to-day operations. Depending on your credit score and income, the interest rates may even be lower than for a business loan, though this type of financing does require collateral as a condition to qualify. You can typically borrow up to $50,000 but must pay it back within a two-to-seven-year period.

Small Business Administration (SBA) loan

With funding for up to $5.5 million, lower interest rates, and longer repayment terms, SBA loans can be an excellent source of funding for small businesses seeking to expand or refinance their debts. These loans are provided through a network of partner banks and lenders, which the SBA partially guarantees. However, the lending standards are stricter than for other types of financing, and these loans can take a long time to fund, so ensure that your business is prepared for the waiting period.

Term loan

This type of business financing is among the most sought-after because it is one of the least expensive ways to borrow money. There are three types of term loans: short-term (a twelve-month or less repayment period), medium-term (one to five years), and long-term (five years or more). Loan amounts can range from a few thousand to several million dollars and can be used for several reasons, including to expand, purchase equipment or real estate, renovate, move to another location, or even cover the costs of hiring new employees. The interest rate you’ll pay will depend on the amount you want to borrow and the current market. Though many banks and online lenders provide term loans, their requirements can vary greatly; the former typically mandates your business to have been in operation for at least two years, while the latter may approve you at six months.

When carefully selected and applied, the right loan can be a huge asset to help boost your business to new heights. To get started, seek guidance from a lender, who can provide you with the information you need to make an informed decision for your business’s specific requirements and financial standing.

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Clarify your vision and determine your funding requirements to identify the loan that will empower your business journey.